India has got mu-ch of the global outsourcing business for services, but very little for labour-intensive manufacturing.
Two major culprits are inflexible labour laws and the continuing reservation of many items for manufacture by small-scale industries. However, i see signs of one major labour-intensive industry shifting from Western countries and East Asia to India. This is ship-building and ship-repair.
With little fanfare, several corporations are building huge shipyards across the coast of India, from Kutch to West Bengal. Ship-building consists mainly of riveting of steel plates to form a vessel, followed by internal fittings. This cannot be done on an assembly line by robots. It has to be done manually by skilled welders and fitters.
Ship-repairing is even more labour-intensive and skill-intensive. Every repair job requires individual analysis and customised solutions. It involves less material and far more labour than ship-building.
India is well placed to supply cheap skilled labour that can compete with the best in the world. Yet, for decades ship-building has languished despite massive subsidies.
Why? Because, historically, the big shipyards — civilian and military — were inefficient public sector monopolies. A few private sector shipyards were licensed, but only for small vessels.
However, with the abolition of industrial licensing in the 1990s, new shipbuilders like Bharti Shipyard and ABG Shipyard came up. They faced difficult times when the Asian financial crisis led to the collapse of demand for ships. But the regional and world economy recovered sharply after 2003, and the demand for ships is now booming.
This has encouraged several companies to take the plunge and embark on construction of big shipyards, some of which will be world-scale.
ABG has set up a major shipyard costing Rs 1,600 crore at Dahej, Gujarat, and is flooded with orders worth over Rs 1,300 crore. It will build up to 25 ships a year, making it a major Asian player.
Sea King, owned by Nikhil Gandhi, is setting up a shipyard at Pipavav, Gujarat, to build ships of up to 300,000 deadweight tonnage (dwt), almost thrice as large as the biggest ships built by the government\’s Cochin shipyard. It is far cheaper to transport oil to deep-water Indian refineries using big tankers. Gandhi claims that his Pipavav Shipyard will be among the ten biggest in the world. It has bagged two advance orders worth $720 million to manufacture ships for Z Schifenbau of Germany and B F Shipping of Cyprus.
Takeover specialist PK Ruia, who in recent years has taken over Jessops, Dunlop, and Falcon Tyres, now proposes a mammoth shipyard at Haldia costing over Rs 3,000 crore. It will be among the biggest in the world, building 12 ships a year of Panamax size (the maximum size that can go thro-ugh the Panama Canal). The project will include ship-breaking and ship-repair units, as well as a mini-steel plant and captive power plant. It will employ as many as 16,000 workers, more than major auto manufacturers such as Tata Motors and Bajaj Auto.
The Adani group is setting up a Rs 1,000-crore shipyard at Mundra in Kutch, adjacent to its new deep-water port there. This can be expanded to rival the Pipavav shipyard.
Tata Steel plans a shipyard at its new coast-based plant in Orissa. Steel sheets and plates from its steel plant can go directly by conveyor belt to the shipyard, saving time and transport costs. Tata Steel has just formed a joint shipping line with NYK of Japan, and the shipyard will be a link between its steel and shipping business.
A major new development is the decision of the ministry of defence to source the bulk of its annual spending (around Rs 13,000 crore) from the private sector. This has been the main spur for L&T to expand its shipbuilding business, which includes warships. It is already building parts of submarines and soon plans to build entire submarines. Other private sector defence suppliers include the Tatas and Mahindras, both of whom could conceivably get into naval vessels and equipment.
Indian business is convinced that India has a major comparative advantage in ship-building that has been masked all these years by an inefficient public sector notorious for high costs and time overruns. The labour cost per worker in India is estimated at $1,192 per year, against $10,743 and $21,317 per worker in leading shipbuilding countries like South Korea and Singapore. Apart from skilled welders and fitters, India has world-class naval engineers and architects. These, along with top-class management, can make India a global power.
Ship-building was dominated by Europe and North America in the 19th and early 20th centuries. In the \’60s Japan\’s cheap skills enabled it to become the top ship-builder. Soon afterwards South Korea , Taiwan and Singapore emerged as major builders. However, all these have now become high-income countries. So, ship-building is shifting to China.
Logically, it should shift to India too. China and India have the skills and cheap steel to make the best, cheapest ships.
